How much of the sharp Q1 profit decline can be recovered in FY2027-H1

Q1 revenue was ¥38,039 million, down 0.7% year on year; operating profit was ¥3,424 million, down 41.1%; ordinary profit was ¥3,536 million, down 40.9%; and quarterly net income attributable to owners of the parent was ¥2,517 million, down 41.5%. Although the decline in revenue was limited, the drop in profit was substantial, with the operating margin falling by approximately 6.2 percentage points, from approximately 15.2% in the year-earlier period to approximately 9.0%.

Progress against the full-year forecast was 20.0% for revenue and approximately 26.8% for operating profit. Operating profit exceeded the 25% elapsed-period benchmark, while revenue was approximately 5 percentage points below it. Accordingly, apparently healthy profit progress should not be interpreted directly as evidence of full-year achievability. It is necessary to assess separately whether the revenue shortfall can be made up through a recovery in demand, and whether strategic expenses that increased in Q1 in the smart-meter and DX fields and in connection with improved employee compensation will continue after the interim period.

The company has a seasonal structure in which gas and LPG demand increases from winter through early spring, so quarterly profit cannot simply be multiplied by 4. Q1 was affected by lower heating demand due to high temperatures in early spring. At the next interim results, it will be necessary to separate the effects that have dissipated with the weather from structural deterioration caused by pricing, sales volumes and higher expenses. In particular, if interim operating profit falls below ¥6,673 million in the year-earlier period, dependence on the second half to achieve the full-year forecast of ¥12,800 million will increase further.

As of Q1, the full-year forecasts remained unchanged at revenue of ¥190,200 million, operating profit of ¥12,800 million, ordinary profit of ¥13,000 million and net income of ¥9,392 million. At the next results announcement, it will be necessary to check not only whether the company continues to describe performance as broadly in line with plan, but also the interim results relative to the operating profit forecast, the increase in strategic expenses and the recovery in profit by segment. Even if revenue returns to positive year-on-year growth, downside risk to the full-year forecast will remain if the operating margin stays low.